May 12, 2022

MBA: Action Needed To Oppose Credit Union Charter Enhancement Bill

As Congress considers legislation that would allow credit unions to expand their membership and business lending capacity, MBA has called on bankers to encourage their lawmakers to reject the credit union industry’s latest attempt at charter enhancement. The House Financial Services Committee is set to consider the bill next week.

MBA and the American Bankers Association is opposed to the proposal and is urging bankers to express concerns about the legislation’s lack of a requirement for credit unions to prove their service to underserved communities. Credit unions must be held accountable for the financial services they provide to low- and moderate-income individuals and businesses, ABA said.

Missouri Division Of Finance Authorizes State-Chartered Banks Authority To Approve Loans, Make Credit Decisions At Any Location

A recent “wild card letter” issued by the Missouri Division of Finance lifts an archaic restriction that restricted the location of banks’ underwriting decisions to the main bank or a full-service branch. This restriction often sowed confusion and created conflicts for banks in their operation of loan production offices. Interpretive Letter 2-2022 resolves this issue and establishes parity for state-chartered banks with federally chartered banks.

“This outdated limitation is a holdover of a time when significant restrictions existed on interstate and de novo branching activity, and when asynchronous communications between a bank’s physical location was the standard,” said Acting Commissioner Mick Campbell.

The division expressly noted that:

  • loan officers can ably use modern technology to perform loan approval activity from any location
  • that this activity is allowed under federal law
  • that the activity is not unsafe or unsound

The letter was issued under authority granted the Commissioner of Finance at Section 362.106, RSMo. Any bank meeting the conditions described in the letter may rely on this authority.

CRA Proposal Outlines New CRA Evaluation Framework

A proposal from the federal banking regulators to modernize the Community Reinvestment Act would establish a new framework for evaluating banks’ CRA performance. The nearly-700-page proposal stratifies three different assessment tiers.
  • large banks (defined as those with $2 billion or more in assets)
  • intermediate banks ($600 million to $2 billion in assets)
  • small banks (less than $600 million in assets)

Ratings will be determined based on a weighted average of the applicable performance test scores.

Under this framework, large banks would be subject to the following.

  • a retail lending test
  • a retail services and products test
  • a community development financing test
  • the community development services test

Within the large-bank tier, certain provisions of the retail services and products test and community development services test would only apply to banks with $10 billion or more in assets.

Intermediate-sized banks would be subject to the retail lending test and the status quo community development test but may choose to opt into the community development financing test. Small banks would be evaluated under the status quo small bank lending test, unless they choose to opt into the retail lending test. Firms also can choose to be evaluated under a CRA strategic plan as an alternative method for evaluation.

In addition, the proposal provides specific details on each of the tests, qualifying CRA activities, assessment areas, ratings, data collection, reporting and disclosure.

OCC’s Hsu: Time To Update Frameworks Of Bank Merger Analysis

During an industry event this week, Acting Comptroller of the Currency Michael Hsu once again addressed the topic of bank mergers — an issue he says has gotten “significant attention” recently.

“Concerns about the negative effects of bank mergers on competition, communities and financial stability have prompted some to call for a moratorium on merger activity,” Hsu said. “In response, others have defended the benefits of mergers. They note that the U.S. financial services market is highly competitive, and mergers allow institutions to achieve needed economies of scale and to diversify risk through geographic or product expansion.”

‌Hsu said the frameworks for analyzing bank mergers need updating but that imposing a moratorium on mergers would “lock in the status quo,” preventing mergers that could increase competition, serve communities better and enhance industry resiliency. The Office of the Comptroller of the Currency uses the Department of Justice’s bank merger review guidelines, which were last revised in 1995, although an update to the guidelines is currently pending.

Given all the market, technological and demographic changes of the last 27 years in the United States, Hsu said it’s time to “rethink the frameworks” used to analyze bank merger applications.

“I do not think the statutory prongs of competitiveness, safety and soundness, meeting community needs, and financial stability need to be revisited,” he said. “Rather, the modes of analysis used by regulators to apply these factors need to be improved.”

‌One of the modes Hsu cited was the analytical framework for assessing financial stability risks of bank mergers under the Bank Merger Act, which he said needs “significant work,” citing a “resolvability gap” for large regional banks.

“Unless and until that gap is addressed, the approvals of large bank mergers risk creating a new set of too-big-to-fail firms,” he said. His comments echo those he made at an industry event in early April.

ABA has commented on DOJ requests for input on revisions to its 1995 bank merger competitive review guidelines (February 2022 and October 2020). ABA also plans to comment on the Federal Deposit Insurance Corporation’s recent Bank Merger Act RFI.

Banking Groups Call For Changes To SEC Cyber Incident Reporting Proposal

The American Bankers Association and a coalition of financial services groups called for extensive changes to a proposal by the Securities and Exchange Commission that would create new requirements for public companies regarding the disclosure of cybersecurity incidents. Among other things, the SEC would amend Form 8-K to require that registrants “disclose information about a material cybersecurity incident within four business days after the registrant determines that it has experienced a material cybersecurity incident.”

The groups called for changes to the timing of disclosure to “four business days after the registrant has reasonably determined that the cybersecurity incident is no longer ongoing, and that public disclosure of the incident will not seriously jeopardize the security of the registrant,” emphasizing that the current proposal’s requirements lack “sufficient regard for the security risks and harms that such disclosures may pose in certain circumstances.”

They also urged the SEC to not require registrants to disclose information about remediation activities, including changes to cybersecurity policies and procedures; called for clarity around several definitions and other aspects of the proposal; and advocated for less prescriptive requirements. The groups also opposed a proposed requirement for registrants to disclose the cybersecurity expertise of members of the board, noting that it “will have the effect of suggesting that boards without directors with such specific expertise are somehow deficient.”

ABA Weighs In On CFPB’s Human Trafficking, Credit Reporting Proposal

The American Bankers Association wrote to the Consumer Financial Protection Bureau in response to a recent proposal to implement a section of the 2022 National Defense Authorization Act, which made changes to the Fair Credit Reporting Act prohibiting consumer reporting agencies from furnishing a consumer report containing any adverse item of information concerning a consumer that resulted from a severe form of trafficking in persons or sex trafficking if the consumer has provided trafficking documentation to the CRA. Among other things, the CFPB is seeking comment on who may make a “determination” that the information in question resulted from a severe form of trafficking in person or sex trafficking and the type of documentation required.

In the letter, ABA emphasized the industry’s efforts to expose and combat human trafficking and supported the concept of blocking information in consumer reports that results from human trafficking and provided examples of how banks help detect and prevent human trafficking activity. Although ABA supported the concept of blocking information in consumer reports that result from human trafficking, the association cautioned that the bureau “should not ignore the potential for abuse by people who are not trafficking victims and the resulting degradation and unreliability of consumer reports if the regulation is not implemented appropriately.”

To ensure that such abuse does not occur, ABA urged the CFPB to follow the language and spirit of the Fair Credit Reporting Act and require that a governmental agency or court make a determination that the person is a victim of human trafficking. ABA also called on the bureau to “use its platform to advocate for creation of a compassionate, manageable and reliable means of providing the documentation of a determination required under the statute.”

Banking Agencies Issue Updated Flood Insurance Guidance

The banking agencies issued a set of reorganized, revised and expanded interagency questions and answers on flood insurance compliance. This guidance consolidates Q&As that were previously proposed in July 2020 and March 2021.

‌Among other things, the new Q&As provide guidance related to major amendments to the flood insurance laws with regard to the escrow of flood insurance premiums, the detached structure exemption, force placement procedures and the acceptance of flood insurance policies issued by private insurers.

In response to concerns raised by the American Bankers Association and other trade groups in comments on the previously proposed Q&As, the agencies confirmed that they “are providing the interagency questions and answers as guidance only” and do not serve as the basis for supervisory action.

CFPB Affirms ECOA Applies To Existing Borrowers

The Consumer Financial Protection Bureau affirmed in an advisory opinion that the Equal Credit Opportunity Act and its implementing regulation, Regulation B, protect consumers who are actively seeking credit, as well as those who have sought and received credit.“This has been the longstanding position of the bureau, and the view of federal agencies prior to the bureau’s creation,” the CFPB noted.

However, “[d]espite this well-established interpretation, the bureau is aware that some creditors fail to acknowledge that ECOA and Regulation B plainly apply to circumstances that take place after an extension of credit has been granted, including a revocation of credit or an unfavorable change in the terms of a credit arrangement,” the advisory opinion said. “In addition, the bureau is aware that some creditors fail to provide applicants with required notifications that include a statement of the specific reasons for the adverse action taken or disclose an applicant’s right to such a statement.”

Although the bureau stated that its view is supported by legal precedent, the CFPB acknowledged in the opinion that “a few other district court decisions have interpreted ‘applicant’ to include only persons actively seeking credit,” but that “no court of appeals has endorsed these district courts’ narrow reading.” The advisory opinion is consistent with a friend of the court brief filed in December by the CFPB, Department of Justice, Federal Reserve and Federal Trade Commission.

Fed: Banking System Remains Strong, Assessing Of Fintech Risk Ramps Up

The banking system remained strong overall, with robust capital and liquidity and improved asset quality in the second half of 2021, according to the Federal Reserve’s latest supervision and regulation report. The Fed said that risk monitoring will continue for potential effects of the pandemic and new geopolitical risks, including Russia’s invasion of Ukraine.

The banking industry ended 2021 with strong capital positions, the report noted. Since the pandemic began, the industry has added nearly $230 billion in additional common equity tier 1 capital, providing support for lending and a buffer against losses. Strong deposit growth has spurred the increase in liquid assets and allowed banks to reduce their reliance on more volatile forms of funding. Bank profitability declined in the last three quarters of 2021 but remains sound and comparable with pre-pandemic levels, the report said. The decline was due to reduced benefits from negative provision expense and lower trading income at large banks.

The Fed said that it will continue to focus on capital and liquidity management, as well as cybersecurity. The Fed also is reviewing the risks created by the increasing use of technology by financial institutions and is enhancing its supervisory approaches to respond to these risks.

“Banks are expected to ensure appropriate controls are established to support new fintech products and services,” the Fed wrote. “As banks engage in these activities, they should develop and implement risk-management practices and controls at a pace that aligns with their growth.” The report noted that while all sized of banks have embraced fintech, the approaches to adopting it vary across banking segments. The Fed has established a System Fintech Supervisory Program to assess the range of fintech risk. The program is developing a “coordinated supervisory strategy” that will be tailored to a bank’s size and complexity. The report also noted that U.S. banks have heightened their cyber defenses in response to geopolitical tensions.

Fed Survey: Business Lending Standards Largely Unchanged Amid Rising Demand

Lending standards for business loans remained largely unchanged in the first quarter of 2022, according to the Federal Reserve’s senior loan officer opinion survey. Lenders reported a general easing of standards for consumer loans during the survey period. ‌

  • C&I — Commercial and industrial lending standards to firms of all sizes remained basically unchanged in the first quarter, following four quarters of easing. Terms on C&I loans generally eased for large and middle-market firms, though net percentages reported tightening on premiums charged on riskier loans and collateralization requirements, while for small firms, net percentages reported tightening on costs of credit lines, premiums charged on riskier loans and collateralization requirements. Demand for C&I loans was generally up for small, middle-market and large firms.
  • CRE A modest net share of banks reportedly eased standards for commercial real estate loans secured by multifamily properties, while standards were basically unchanged, on net, for construction and land development loans and nonfarm nonresidential loans. Demand was stronger on net for loans secured by multifamily residential properties.
  • Mortgages On net, standards eased for all types of mortgages and home equity lines of credit, though demand was down across the board for all mortgage types. HELOCS, on the other hand, saw demand increase, with a net 5.3% reporting that demand was moderately or substantially stronger.
  • Personal Lending Banks reported a greater willingness to make consumer installment loans than they did three months prior — a net 18.6% said they would be somewhat more willing to do so. On net, standards eased on credit cards, auto loans and other personal loan types. Banks also reported increased demand on net across all personal loan types.

ABA: No Action Needed By DOL On Climate-Related Risk For Retirement Accounts

In a comment letter responding to a Department of Labor request for information, the American Bankers Association said it is not necessary for the department to take any regulatory action related to climate-related financial risk or other risks associated with climate change. Requirements of the Employee Retirement Income Savings Act on the investment decision-making and risk management processes “afford all the protections necessary to safeguard, preserve and grow retirement savings,” ABA wrote.

On the other hand, a new regulatory scheme requiring considerations and reporting of climate-related financial risk, regardless of the actual presence or degree of such risk, would “undercut a plan fiduciary’s authority and duty under ERISA to appropriately consider and manage all relevant risks; impose unnecessary costs to plans and their participants; and undermine ERISA standards and department regulations on investment duties that require deference to the judgment of the plan fiduciary rather than the substitution of the department’s judgment,” ABA wrote.

If the department can overcome these legal obstacles and reasonably conclude that action is warranted, then ABA recommended that prior to taking action, the department “collect, analyze and evaluate the data necessary to understand climate-related financial risk and how this risk interacts specifically with traditional financial risks and ERISA’s requirements, and consult and coordinate with staffs at the other federal financial agencies on a joint action plan to achieve harmonized regulation of climate-related financial risk that is targeted, consistent, and purposeful.” The letter also responded to specific RFI questions related to the substance and manner of reporting on climate-related financial risk.

SEC To Extend Comment Period For Proposed Climate Disclosure Rule

The Securities and Exchange Commission said it would extend the comment period for its recently proposed climate disclosure rule from May 20 until June 17. The rule, which was originally proposed in March, would establish requirements for public companies to disclose information about climate risks affecting them, their greenhouse gas footprints and any emissions-reduction plans they may have adopted.

The proposal requires disclosure of a registrant’s direct GHG emissions (scope 1), indirect emissions from purchased energy (scope 2) and indirect emissions from activities upstream and downstream in a registrant’s “value chain,” if material (scope 3, which would include “financed emissions” in a bank’s lending portfolio). Small reporting companies would be exempt entirely from scope 3 disclosures, and due to their complexity scope 3 disclosures, would phase in after scope 1 and 2 for larger registrants and also be subject to a safe harbor. Accelerated and large accelerated filers would need to obtain independent attestation reports for their disclosures of scopes 1 and 2 emissions.

Fed Adds Resources To ID Fraud Mitigation Toolkit

As instances of synthetic identity fraud — through which fraudsters create new identities out of pieces of real or fictitious information — become more prevalent, the Federal Reserve updated its toolkit of resources to help banks and consumers mitigate risks associated with these types of fraud.

The updates include two new modules on how technology enhances fraud detection and on fraud data strategy and information sharing. Other resources in the toolkit address the basics of synthetic identity fraud, how fraudsters use synthetic identities and how to identify synthetic identities.

Survey: Banking Outpaces Other Industries In Preparing To Combat Fraud, Corruption

The banking sector is among the most prepared industries to combat fraud, corruption and illicit activity, according to a recent report. The results of a recent survey of more than 1,330 senior risk-strategy decision-makers across multiple industries indicated that 84% of respondents in the banking sector had conducted an internal investigation in the last three years — more than any other sector surveyed. In addition, 89% of respondents in the banking sector reported their organization had been significantly affected by serious misconduct — the second highest behind travel and tourism.

‌The report, conducted by risk and compliance technology firm Kroll, noted that the costs associated with investigating fraud and illicit activity have increased, particularly for organizations with revenue of more than $15 billion. The survey also indicated that risk professionals believe that some investigative services firms fail to deliver value, suggesting that many external providers may not employ the most up-to-date technology to find relevant information in massive volumes of structured and unstructured data.

Almost all organizations (98%) that had conducted an internal investigation recruited the help of external firms to assist, with computer forensics/eDiscovery firms used most frequently (55%), followed by investigations firms (47%). Despite advancements in technology and data analytics, nearly four in five (79%) respondents said the cost of investigations had increased in the past three years.

ABA, Groups Publish AML Best-Practices Compliance Guide For MSBs

A group of companies involved in money services businesses, working with other interested parties including the American Bankers Association, this week issued a best-practices guide for MSBs related to anti-money laundering and Bank Secrecy Act compliance.

MSBs are categorized as nonbank financial institutions, such as credit card systems, investment advisers, mutual funds, insurance companies, loan providers or finance companies. The best practices also include guidance for virtual currency and fintech companies, recognizing their integration into the financial services landscape and accompanying AML obligations.

‌The goal of the document is to help MSBs develop a compliance program to meet applicable requirements established by the Treasury Department’s Financial Crimes Enforcement Network. The guide also is intended to help MSBs open and retain banking relationships while also helping banks understand the business operations of MSBs and the commensurate risks. “Overall, these industry best practices should enable an MSB to develop and maintain an AML program to meet its obligation to detect, report and prevent money laundering and terrorist financing,” the guide’s authors wrote.


The Federal Housing Finance Agency has become a member of the Network of Central Banks and Supervisors for Greening the Financial System, joining other U.S. banking regulators such as the Federal Reserve and the Office of the Comptroller of the Currency. With the announcement, FHFA is highlighting the increasing risk to property from climate change, including severe structural damage caused by hurricanes, tornadoes, floods, droughts and wildfires.

Founded in 2017, NGFS is a group of central banks and supervisors that shares best practices in the development of environment and climate risk management in the financial sector and works to mobilize mainstream finance to support the transition toward a sustainable economy. FHFA Acting Director Sandra L. Thompson said the agency's regulated entities should prioritize climate change and actively consider its effects in their decision making.

Upcoming ABA Foundation/FBI Webinar To Focus On Elder Fraud Trends

The American Bankers Association Foundation, Federal Bureau of Investigation and other industry partners will host the second of a three-part webinar series on protecting older Americans from scams and fraud at 11 a.m. Monday, May 16. The webinar will provide insights from government experts about recent fraud trends, as well as information on the criminals who are employing these types of scams to defraud seniors.

The ABA Foundation offers resources for banks to help educate consumers on elder fraud and other scams through its Safe Banking for Seniors program.

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